Peeling away financial reporting issues one layer at a time

Don’t Rely on “Journal of Accountancy” for Balanced Reporting of IFRS

In the main, the only reason my wife and I subscribe to magazines and newspapers in hardcopy is because she prefers them.  I much prefer to get as much as possible from the web; the lone anomaly being the Journal of Accountancy, which I have received continuously since becoming a member of the AICPA in the late ’70s. According to the AICPA’s own FAQ page, there are nearly 370,000 members.  Since nobody has ever asked me whether I actually want to receive my very own hardcopy, I presume that every member gets one.

In case you are interested, one obvious difference between JofA and my humble blog is circulation:  compared to JofA, I am but a grain of sand.  But there is another big difference: whereas I am opinionated, JofA is biased. Consequently, I can find hardly anything (except for some nerdy tips on using Excel) that is worthwhile reading; and once per month, I rue the number of trees that have died on my account.

JofA in the Good Old Days

My strong recollection is that JofA wasn’t always as biased and narrow as it has become in the last twenty years or so. For confirmation, I conducted a very modest experiment.  I picked out one issue of the JofA at random from around the time I first started to be a subscriber.  From that issue, October 1977, I browsed the table of contents for  pieces I would have found interesting, and found these six in just that one issue:

  •  “Uncovering Corporate Irregularities: Are We Closing the Expectation Gap?”
  • “Is SEC Replacement Cost Data Worth the Effort?”
  • “Accounting and the Status Quo”
  • “The Economic Impact of Accounting Standards”
  • “The Tax Partner Walks a Tightrope”
  • “Earnings per Share — Must it Always be the Lowest Possible?”

Honestly, October 1977 was the only issue I checked, but if you want to suspect me of cherry picking, I forgive you.

Of the above articles, I read only one, “Accounting and the Status Quo”; again, solely because it was the first one to catch my eye.  It’s author was Columbia professor C. W. Bastable, and this is a snippet:

For example [of the lack of viability that stems from preoccupation with the status quo], APB Statement No. 4 stated, “The effects of inflation in the United States are not considered sufficiently important at this time to require recognition in financial accounting measurements.”  I shall forever question the wisdom of this kind of pronouncement.  Alerted to an unstable variable, the Accounting Principles Board [of the AICPA] opted to ignore a potential problem by dealing with it in terms of the status quo. [emphasis added]

It seems that back in 1977, JofA cared enough about content quality to tolerate some constructive criticism of the AICPA.   But nowadays at the JofA, everything is either bland, unbalanced or biased toward monotonic support of the party line, which seems to be perfectly correlated with the commercial interests of the Big Four.

The Present JofA

All of the above is to set up a review of two recent articles in JofA on the state of IFRS convergence.  This is the first one:

Study by UK researchers shows inconsistency in IFRS application” (1/25/12 — on the web)

Imagine that the New York Times reports on new research casting doubt on the health benefits of red wine consumption: Would it choose to feature comments by the executive director of a winery ‘trade group’ — or the researchers themselves? In an effort to be balanced, NYT might quote from both sources, but definitely not just the wine growers.

But, featuring the response from the equivalent of the frontperson for the wine growers is essentially what  JofA did in this article, which is supposed to be about recent accounting research that challenges whether IFRS is applied correctly with sufficient regularity. The reporter cursorily describes the research paper, but about 50% more coverage (184 words to 128), starting with the paragraph right after the lede, is given over to IASB chair Hans Hoogervorst — non-accountant, non-academic, but chief IFRS spinmeister:

… Hoogervorst said more consistent application remains a worthwhile goal that requires the attention of regulators, auditors, and standard setters. But he said that even in the presence of inconsistencies, worldwide adoption of IFRS remains the best way to arrive at global comparability between companies.

The truth is that even an unevenly applied global standard provides much more global comparability than an equally unevenly applied multitude of diverging national standards,’ Hoogervorst said …. ‘Without a global standard, there is absolutely no chance you will ever arrive at global comparability.’ [emphasis added]

Essentially, the substance of the article begins with a declaration of “the truth” according to a person who didn’t perform the research that is putatively the subject of the article.  To add insult to injury, JofA doesn’t even deign to report a single statistic from that research, e.g., the overall rate of IFRS misapplication.  After those mere 128 words — which includes a carefully selected quote from the report stating that as dismal as the results were, consistency of IFRS application is not as bad as it used to be — we’re back to more from Hoogervorst, who essentially got the first word, and now gets the final word:

But Hoogervorst said that current U.S. standards are not applied consistently, either. He called attention to a finding in the SEC report that showed that in 2010, SEC reviews resulted in 735 restatements by 699 U.S. issuers.

‘This goes to show that in an economy as sophisticated as the United States, using a deeply entrenched national GAAP, you still see challenges with consistent application of the standards,’ Hoogervorst said.

Notice that the only statistics cited by JofA are the ones that Hoogervorst cherry picked from some other report more to his liking.

I certainly wouldn’t want to speak for the authors of the study that I did not read myself, but Hoogervorst must know that when comparing the statistics from the SEC’s report to the unreported statistics from the research he is comparing apples with oranges: every single one of the inconsistencies in the application of US GAAP observed by the SEC staff  were corrected, whereas those noted by the UK researchers apparently were not.  And, an unknown number of the restatements by SEC registrants were not a result of SEC monitoring or enforcement; they were undertaken after the issuers themselves or their auditors discovered the error and self-reported.

How many trees makes 370,000 copies of the Journal of Accountancy?  I weep.

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Oh yeah, that second article I was going to write about.  It’s authored by former IASB member Paul Pacter, is entitled “What Have IASB Convergence Efforts Achieved?”, and it actually was my initial motivation to write this.  Obviously, I got sidetracked, but I do have a lot to say about the Pacter article, and I promise to make that the subject of my very next post.

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On an administrative note, I have moved my blog to WordPress in order to have more formatting options.  It’s a work in progress, and I appreciate your patience as I work on furnishing my new digs.

1 Comment

  1. Reply Steve Chai March 8, 2013


    It is good to know that you have the same opinion that I have had for JoA for a long time. Whe I read JoA articles from 60s to 70s, there are many throught-provoking theortical articles by well known accountants. Nowdays, JoA tends to have so call “practical” articles often written by some associate professors at universities.

    For this matter, other accoutning journals are not doing any better job. Take the Accounting Review. Except for so called “emprical” studies, there are nothing else even be written about any more. What happened to the accounting academic community?

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